By Alexander Gladstone and Nora Naughton
Hertz Global Holdings Inc., one of the nation's largest
car-rental companies, filed for bankruptcy protection Friday,
saddled with about $19 billion in debt and nearly 700,000 vehicles
that have been largely idled because of the coronavirus.
The Estero, Fla.-based company entered chapter 11 proceedings in
the U.S. Bankruptcy Court in Wilmington, Del., hoping to survive a
drop-off in ground traffic from the pandemic and avoid a forced
liquidation of its vehicle fleet.
The Wall Street Journal reported earlier Friday that Hertz had
failed to reach a standstill agreement with its top lenders and was
preparing to file for bankruptcy as soon as that evening.
The company's collapse marks one of the highest-profile
corporate defaults stemming from the pandemic's impact on air and
ground travel, though Hertz also had challenges before the current
economic crisis. Even before the Covid-19 outbreak, Hertz had been
struggling with competition from peers including Enterprise
Holdings Inc. and Avis Budget Group Inc., as well as from
ride-hailing services such as Uber Technologies Inc. and Lyft Inc.
The company lost some $58 million last year, its fourth consecutive
annual net loss.
But Hertz's business was hammered by the onset of the
coronavirus, as people world-wide bunkered in at home and global
travel shriveled up. Going forward, as businesses adapt by
conducting meetings remotely, business travel may not return to
prepandemic levels, according to bankers and analysts who follow
Hertz didn't reach a deal with creditors before entering chapter
11, heightening the risk of a full liquidation of the fleet,
although the company and investors have several weeks to work out
an agreement avoiding that outcome, people familiar with the matter
Hertz has spent years trying to restructure its business, and
has blown through four chief executives in less than a decade. Most
recently, former Chief Executive Kathryn Marinello was replaced
Monday by Paul Stone, who previously served as the company's
executive vice president and chief retail operations officer for
Hertz has also had a debt problem that can be traced back to a
2005 leveraged buyout by private-equity firms.
Founded in Chicago in 1918 and originally known as Rent-a-Car
Inc., Hertz opened its first airport car-rental facility at Midway
Airport in 1932. The company's owners have included RCA Corp. and
later Ford Motor Co., which sold Hertz to a buyout group led by
Clayton Dubilier & Rice in 2005 for $5.6 billion.
The company went public in 2006, and activist investor Carl
Icahn, who started acquiring Hertz shares in 2014, now owns more
than one-third of the company and has placed three of his
representatives on the board.
The pandemic has diminished automotive traffic in the U.S.,
squelched car sales and cut into rental reservations at Hertz. The
Wall Street Journal reported in early May that Hertz, the nation's
second-largest rental-car company by fleet size behind Enterprise,
was preparing for a bankruptcy filing.
The bankruptcy is expected to be complex given the company's
vast debt and corporate structure, which includes $14.4 billion of
vehicle-backed bonds at subsidiaries that aren't part of the
chapter 11 filing.
Like Avis and some other rental car companies, Hertz doesn't own
its vehicles. The company leases its rental-car fleet, about
770,000 vehicles in total, from separate financing subsidiaries.
The lease payments are earmarked for investors that own bonds
backed by the fleet.
Now that Hertz has filed for bankruptcy, investors with rights
to the vehicle fleet have to wait for 60 days before they can
foreclose on and sell the cars. Hertz and its creditors will likely
aim to prevent a complete liquidation and strike a deal to downsize
the fleet while keeping some vehicles in operation, said people
familiar with the matter.
With the $14.4 billion in vehicle-finance bonds so widely held
-- by pension funds, mutual funds and structured-credit funds --
the company has faced difficulty coordinating with bondholders,
people familiar with the matter said.
Rental-car companies play an important role in supplying newer
models to the used-vehicle market. Hertz also is a major customer
for U.S. auto makers, purchasing about half of its fleet from
General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV
in 2019, according to a financial filing.
Analysts were concerned that Hertz could be forced to sell part
or all of its fleet into an unusually weak market. But the possible
liquidation would come at a time when demand for used vehicles is
rising slightly, and pricing in the market is showing signs of
recovery after hitting historic lows in April.
"Any ripple effect will be less than it was six weeks ago," said
Zo Rahim, an analyst for Cox Automotive, which owns vehicle-auction
operator Manheim Inc.
Cara Lombardo and Matt Wirz contributed to this article.
Write to Alexander Gladstone at email@example.com and
Nora Naughton at Nora.Naughton@wsj.com
(END) Dow Jones Newswires
May 22, 2020 23:24 ET (03:24 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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